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Trade Wars on the Income Statement: the Effects of Tariffs on Firms

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Abstract

We construct firm-level exposure to the 2018 and 2025 US tariffs through own imports, suppliers' imports, and foreign retaliation, and estimate their joint effects using quarterly financial statements. Exposure is widespread and travels down supply chains, reaching firms that import little themselves. In 2025, cost exposure reduced sales and cost of goods sold equally within three quarters, by about 1.2 percent for the average direct importer and 0.5 percent through suppliers. Firms at least partly passed tariffs on to prices and shrank production rather than cutting margins. Retaliation instead compressed gross margins. The 2018 effects are small.

Suggested Citation

  • Omar Barbiero & Viacheslav Sheremirov & Alvaro Silva & Hillary Stein, 2026. "Trade Wars on the Income Statement: the Effects of Tariffs on Firms," Working Papers 26-15, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:104026
    DOI: 10.29412/res.wp.2026.15
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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